Magazine

Closing Bell: TiVo

October 19, 2003

He may keep trim by running marathons, but PepsiCo (PEP) Chairman and CEO Steven Reinemund knows how to fatten up a bottom line. On Oct. 7, Reinemund reported a "terrific" third quarter for the food and beverage giant. Thanks to 7% revenue growth from snacks and 16% sales growth on the international front, profits climbed 13%, to $1.07 billion. New products helped total revenue move ahead 8.4%, to $6.8 billion. And analysts say that since taking the helm in 2001, Reinemund has wisely put PepsiCo closer to being a friend rather than a foe of the health community with moves like switching its chips from oils containing trans-fats to more heart-healthy versions. The $14 billion acquisition of Quaker Oats in 2001 also gives more balance to PepsiCo's reputation for sugar and fat. "He has put PepsiCo in a position to take advantage of consumers eating healthier," says Bryan Spillane of Banc of America Securities. (BAC). The ex- Marine is whipping out a lot of costs, too. That's a menu investors seem to find appetizing. After resisting the move for years, Motorola plans to spin off its semiconductor business into a separate, publicly traded company. Motorola (MOT) is expected to distribute a portion of semiconductor equity to shareholders over the next few months and then spin off the division some six to nine months later. Most analysts expect the chip unit's initial public offering to fetch from two to four times its $5 billion in anticipated 2004 sales. Independence should help the semiconductor biz win new customers. But it will have to work hard to overcome the $246 million in operating losses it suffered in the first half of 2003. Another energy executive heads for the exit: On Oct. 7, Duke Energy (DUK) said CEO Richard Priory will step down in coming weeks. He'll cede the job to former Duke executive Paul Anderson, who most recently was CEO of Australia's BHP Billiton. Under Priory, the sleepy Charlotte (N.C.) power utility bet big on deregulation, spending billions to build power plants in the U.S. and abroad to supply power on the open market. But when Enron (ENRNQ)'s bankruptcy turned the energy boom into a bust, Duke began to buckle. While Duke says the change simply reflects the 57-year-old Priory's long desire to retire in his mid-50s, he has felt the heat: Duke's stock trades at half its 2001 price, and investors began to fear that a dividend cut was imminent. Anderson won't comment except to say: "I feel dividends are pretty important." The Public Company Accounting Oversight Board unveiled its first standards on Oct. 7, tentatively approving a proposal on how accountants should evaluate internal controls at public companies they audit. The 2002 Sarbanes-Oxley Act requires auditors to gauge corporate executives' assessment of internal controls -- the checks and balances that are supposed to deter fraud. The board wants auditors to do start-to-finish "walk-throughs"of key transactions. Also controversial: Auditors would have to scrutinize the audit committee of the board of directors. Federal Communications Commission Chairman Michael Powell has suffered another setback. On Oct. 6, an appeals court in San Francisco threw a wrench in the FCC's plans to deregulate cable and DSL broadband services. The court disagreed with the FCC's proposal to classify cable broadband as an "information service" that receives minimal regulation. Instead, the court said two-way cable modems share characteristics of highly regulated telecom services. The FCC is appealing, but the ruling is likely to put the agency's DSL initiative on hold. Powell's earlier deregulatory attempts have met with opposition from several quarters, including FCC members, the courts, and Congress. -- Former SEC head Arthur Levitt and others joined an accounting think tank.

-- The Atlanta and Pittsburgh federal home-loan banks both reported losses for the third quarter. On Oct. 8, TiVo (TIVO) rose 11.8%, to 8.83, on news it will promote some Fox TV shows and that DirecTV's CEO will join its board. The move calmed fears that News Corp. (NWS), which is buying DirecTV, might end a deal to let users buy satellite set-top boxes with TiVo's video-recording service.